Finance Minister Pranab Mukherjee on Monday announced the rollback of some Budget proposals dubbed ‘draconian’ by industry groups. During the discussion on the Finance Bill, 2012 in Parliament, Mukherjee proposed to defer the General Anti-Avoidance Rule (GAAR) for a year, withdraw the excise duty proposed on jewellery and remove provisions making some excise and customs duty evasion offences non-bailable.
“To provide more time to both taxpayers and the tax administration to address all related issues, I propose to defer the applicability of the GAAR provisions by one year. The GAAR provisions will now apply to the income of financial year 2013-14 and subsequent years,” Mukherjee said.
The estimated revenue loss due to various indirect tax proposals, including the withdrawal of one per cent excise duty on jewellery, would be Rs 600 crore for 2012-13, Central Board of Excise and Customs Chairman S K Goel said.
|DEFERMENT AND ROLLBACK
- GAAR deferred for a year; onus of proof on the tax department
- Long-term capital gains tax on PE investors reduced to 10%
- Angel investors investing in start-ups to be exempted from tax
- Tax neutrality to subsidiaries of Indian branches of foreign banks
- Withdrawal of 1% TDS on transfer of immovable property
- Withdrawal of 1% levy on all branded, non-branded jewellery
- Provision making duty evasion offences non-bailable removed
- Goods already taxed by states to be exempted from service tax
The deferment of GAAR, which can deny tax benefits under a treaty if an arrangement is “impermissible”, will be a reprieve for foreign investors who invested in listed Indian securities through tax havens last year. In a breather to all classes of investors, the onus of proving tax avoidance will be shifted to the tax authorities, against the Budget proposal to put it on the taxpayer.
The government conceded to the demand of a parliamentary standing committee to include an independent member, an officer of the level of joint secretary or above from the law ministry, in the panel to give approvals for invoking GAAR. It also allowed all taxpayers, resident as well as non-resident, to approach the Authority for Advance Ruling to know whether an arrangement to be undertaken was permissible under GAAR.
Clarifying doubts on retrospective amendments related to capital gains on the sale of assets located in India through indirect transfers abroad, the minister said these amendments would not override the provisions of the Double Taxation Avoidance Agreements (DTAAs) India had with 82 countries. He added old cases where assessment had already happened would not be reopened. This means the tax demand on Vodafone and other similar deals, expected to add Rs 35,000-40,000 crore to the revenue kitty, would remain valid. “Most of the Vodafone-like transactions were routed through tax havens that do not have a DTAA with India. Some deals were routed through DTAA countries, but India has the right to tax such transactions under treaties with those countries,” a finance ministry official told Business Standard.
On the indirect tax front, Mukherjee rolled back two major controversial proposals — levy of one per cent excise duty on precious metal jewellery and non-bailable arrest for custom and excise duty evasion cases punishable with imprisonment of three years or more.
To appease the states, the definition of “services” under the negative list will be changed to exclude from the purview of service tax activities specified in the Constitution as “deemed sale of goods”. States had been demanding the Centre not levy service tax on activities already taxed by them as goods.
Mukherjee said other concerns related to indirect taxes could be addressed through notifications. “There are a few other proposals relating to rationalisation and adjustment of central excise and custom duties which I will place before the House while replying to the debate,” he added.